By MICHAEL SMALLBERG
Updated 10:37 a.m. 7/6/2012
The Securities and Exchange Commission has named Norm Champ, a former board member of an investment industry lobbying group, to head a division charged with regulating investment management firms.
The SEC announced today that Champ will become director of the Division of Investment Management, which regulates America’s multi-trillion dollar investment management industry. The industry includes hedge funds, mutual funds, and private equity funds.
Before joining the SEC in 2010, Champ served as the general counsel of Chilton Investment Company, a New York-based hedge fund manager. As recently as 2009, he was listed as a board member of the Managed Funds Association, which represents hedge fund managers.
Champ’s appointment highlights a double-edged sword at the SEC. While the agency has sought to recruit more employees with specialized industry experience, critics have argued that a revolving door leads to cozy ties between the SEC and the firms it oversees.
Champ’s appointment comes at a time when the SEC is expanding its oversight of hedge funds and other firms supervised by the Division of Investment Management, as required by the Dodd-Frank law overhauling financial regulation. Last year, SEC Chairman Mary Schapiro announced that new agency regulations “will fill a key gap in the regulatory landscape,” giving the SEC and the public “insight into hedge fund and other private fund managers who previously conducted their work under the radar and outside the vision of regulators.”
The Division of Investment Management has also played a key role in the SEC’s efforts to tighten restrictions on money market mutual funds, a popular investment tool for businesses and individuals. Schapiro testified last month that money market funds “remain susceptible today to investor runs with potential systemic impacts . . . as occurred during the financial crisis just four years ago.” Industry groups have strongly opposed proposed restrictions, and Schapiro appears to be fighting an uphill battle within her own agency to get new rules passed.
Champ is replacing Investment Management director Eileen Rominger, who announced last month that she would be leaving the SEC. Rominger joined the SEC in early 2011 after an 11-year stint at Goldman Sachs.
Champ met with SEC officials as recently as 2009 on behalf of the Managed Funds Association to discuss regulatory issues, according to SEC records. The association has spent more than $15 million since 2008 lobbying the federal government, according to the Center for Responsive Politics. It is headed by Richard H. Baker, a former member of Congress (R-LA) who served on the House Financial Services Committee.
Asked for comment, Champ referred POGO to SEC spokesman John Nester, who said the agency has a “rigorous program for our staff to avoid even the mere appearance of partiality in our work.” The Managed Funds Association did not immediately respond.
In his past work at the SEC, Champ helped oversee examinations that identified concerns at 10 credit-rating agencies. Then, he explained the SEC's decision not to publicly identify the rating agencies where the problems were found.
"In the report, we believe it is fair and consistent with due process not to name names," Champ said at the time, according to The Washington Post.
The examinations, mandated by Congress under the Dodd-Frank Act, involved firms that assess the creditworthiness of corporate bonds and other investments. The SEC said its findings included "apparent failures in some instances to follow ratings methodologies and procedures, to make timely and accurate disclosures, to establish effective internal control structures for the rating process and to adequately manage conflicts of interest."
But in a summary report issued last fall, the SEC did not say which rating agencies had engaged in those practices. That approach spared rating agencies embarrassment and left investors in the dark as to what the findings might mean for the reliability of any particular rating agency or investment, The Post reported in September.
Michael Smallberg is a POGO investigator